By V Pattabhi Ram and Mithun D’Souza
“October,” said Sandy quoting Mark Twain, “is one of the peculiarly dangerous months to speculate in stocks. The others are July, January, September, April, November, May, March, June, December, August and February.” Sandy was meeting up with his friends Bunty, China and Wafers. “I will not touch stocks even with a pair of tongs” said Sandy. “Why?” queried Bunty, rather incredulously. “Because, my uncle advised me not to” came the reply. Sandy’s uncle had lost a fortune in the stock market crash of 1992. “Once bitten, twice shy” had been his refrain. China said, “Today things are different. You get lots of advice about the stock market all for free”.
“Don’t be so hard, Sandy” exclaimed Bunty. “The stock market is a very good avenue for investment. In fact I, who have no gyaan on Dalal Street, have already put lots of my money in there.” Bunty had some handsome disposable income as a software professional and as was the general practice surplus funds tended to flow to the equity market. “Hmm” sighed Wafers with just that tinge of frustration. Obviously, the CA program under the PE scheme was a long drawn affair. Notwithstanding her outstanding academic credentials, her friends were already earning while she wad dependent on dad.
“What do you know about investing and the stock market?” asked Wafers. “Nothing much” said Bunty. “With the business channels on TV offering so many shows you don’t need to know much. And then there are the countless newspapers and magazines”.
“Look before you leap” reminded Wafers. Someone hissed, “he who hesitates falls.” She ignored the jibe and recalled what the professor had told the class, “Stock Market investments are for those who have an appetite for risk. One has to do his homework maturely before getting into the act”. “Homework” said Bunty, motioning to Wafers to explain. Wafers was only too willing to do so. “Today we have a generation of investors who have moved from being diligent fact seekers to couch potatoes. Business channels and business shows have their own value, but by and large they have promoted intellectual laziness especially among the young. Opinions and forecasts are often mistaken for the truth by many”.
They were strong words indeed. Wafers had a healthy respect for the business media. In fact, she wished to work for them. But she disliked the fact that many investors interpreted their statements and analysis without considering the light in which they were said. “Come on” said Sandy, “these CAs are trained to be only fault finders.” “No” said Wafers. “These shows very often give a short term view on the markets, thereby losing the BIG picture. You see, you are missing the wood for the trees. Bloody Monday, Black Tuesday and Good Friday will come and go. But, you need to have a larger perspective.”
“I am a software professional” said Bunty, “What financial analysis am I capable of doing?” Fair question indeed. Wafers was quick to respond. “If you want to invest you must have some understanding of the balance sheet. After all, it is a basic statement and is nowhere close to being rocket science. You might as well try”. Bunty was in no mood to agree. “But, I get this all for free. On TV. The latest position, from the number of orders in hand of a company to the extent of billing in a period” retorted Bunty. “Tada yori takai mono wa nai” exclaimed Wafers. “What?” screamed Sandy in disbelief. Wafers explained. “That’s a popular saying in Japan which means Nothing is more costly than something given free of charge”. Everyone smiled, but Bunty asked Wafers to clarify. Wafers clarified “Bombarding data on a day to day basis; your judgment is going to be as erratic as the data that you pick up”.
“Aren’t you finding faults where none exists?” asked Sandy. Wafers explained. “ Business channels have very educative programs as well. Real time information, plenty of market and economic numbers, an increasingly international perspective, and some decent interviews with chief executive officers, high-level government officials, and other well-placed elites make it very interesting.” Sipping her cappuccino Wafers continued, “Moreover they have attracted an entire genre of investors, punters and speculators towards stocks.” Bunty butted in to say, “That is how I got into investing.” Wafers ignored him and continued, “Yes! This is very instrumental in price discovery”. “Thrift” she added, quoting Keynes “is a private virtue, but a public vice. And the media has certainly contributed in driving up investment and making the markets vibrant.”
China who had been unusually quiet all along chipped in. “I guess Wafers has a point. What is troubling is the never-ending fascination of these TV channels over the latest rumors, market gossip, and fast-buck trading schemes, along with an obsession with finding the next winning stock”. “Yeah” said Bunty “I am impulsively attracted to the stocks suggested on TV”. China remarked, “A certain level of understanding of a company is required before you put your precious money in it.” Wafers, happy at China defending her, changed gears and said. “Watch business shows, by all means. But do not forget that these channels are compulsively required to satisfy advertisers and subscribers who make exacting demands on creativity, objectivity and professionalism.” Slowly the gang was beginning to agree with Wafers.
“Facts are sacrosanct, opinions are free” whispered Sandy. “Right” said China. Wafers remembered Warren Buffet and paraphrased him saying, “Do not let anything compromise with your investing principles. Remember, Fundamentals are the key.” Bunty wasn’t very excited. He asked, “If you think we need to do all the analysis why did God create stock analysts?” There was pin-drop silence for a moment until China remarked tongue firmly in cheek “To make weather forecasters look good.”
And then all hell broke loose.